Illegal sale of ding rights: Tinsley v Milligan re-affirmed

In Kan Wai Chung v Hau Wan Fai ([2016] HKLRD 632, CFI) developers entered into cooperation agreements with the plaintiffs (villagers with ding rights). The developers transferred title to parcels of land in a village to the plaintiffs. The agreement provided that the villagers held the lots as nominees and on trust for the developers. The developers and villagers worked together to exploit the ding rights. It was accepted by all of the parties that this aspect of the agreement and the actions done in pursuance of it were illegal.The houses were built and the developers entered into sale contracts (‘the first contracts’) with third parties; the villagers were nominally the vendors in those agreements. The villagers then entered into their own contracts with another purchaser for the sale of the same lots (‘the second contracts’). The developers brought proceedings seeking an injunction to prevent the second contracts from being completed so as to interfere with performance of the first contracts. These proceedings were ultimately settled in such a way as to allow the developers to complete the first contracts and retain the proceeds of sale. The villagers now brought proceedings against the developers and the solicitors who had prepared the first contracts alleging that they amounted to an unlawful conspiracy. This had caused them loss in the form of their own legal costs in defending the injunction proceedings and the costs order made against them.

This was a trial of two preliminary issues. The first of these was whether the villagers had any equitable interest in the property. If they did not then they could not be said to have suffered any loss as a result of the outcome of the earlier proceedings ([33] per Anthony To J). The villagers had not given any consideration for the transfer of the land to them (though the  assignments to them stated otherwise). On the face of it, therefore, the developers could rely on the presumption of resulting trust. The villagers argued that the developers could not rely on the presumption because of the illegality of the agreement concerning the ding rights. This failed since the case fell squarely within the approach laid down by the House of Lords in Tinsley v Milligan ([39] to [48]). The developers could rely on the presumption to establish their proprietary interest and had no need to plead the illegality.

There was some discussion as to whether the High Court of Australia’s approach to illegality in Nelson v Nelson was to be preferred to Tinsley. Anthony To J. considered that he was bound by several Court of Appeal decisions to accept that Tinsley was the approach taken in Hong Kong. It would be for the Court of Final Appeal to reconsider this if asked to do so in some later proceedings ([45]).

Michael Lower

 

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